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Tuesday, October 01, 1985

Routing the Fabians

I can still hear Sidney Webb explaining to me that the future belonged to the great administrative nations, where the officials govern and the police keep order.

—Élie Halévy

Founded in England in 1884, the Fabian Society’s aim was to spread the ideas of socialism gradually by democratic means. For almost a century it succeeded. In Great Britain and North America, under liberal and conservative governments alike, the state’s influence spread. As recently as the late 1970s, every member of (British) Prime Minister James Callaghan’s cabinet was a Fabian.

Nevertheless it was increasingly plain to majorities of British and North American voters that attempts in the Fabian mode “to achieve through state action the coordinated control of the economic forces of society” had built up a governmental apparatus that was choking their economies. The election of Margaret Thatcher, Ronald Reagan and, later, Brian Mulroney signaled a rejection of Fabianism.

What has not been signaled is the nature of the “ism” that will replace it. It is not enough to hail the blessings of individual enterprise, or freer trade, or even individual freedom. All three stand to be enhanced as the state assumes a less active role in the economy. Desirable though that enhancement may be, it lacks the appeal that wins elections. Nor can we afford the luxury of the Fabians’ gradualism in reverse. The accelerating burden of debt-servicing charges alone demands action in years, not generations.

The political task is to establish a principle, to form policies that adhere to it, and to explain the combination to the people.

Suppose that in North America the principle were to be that the best government is that which governs least, i.e., the antithesis of Fabian socialism. Policy would then be directed toward dismantling the governmental apparatus. Government corporations would be offered for sale. Any unsold after a stated interval would be dissolved. Services provided solely by federal governments would be contracted out to private suppliers whose terms of contract would stipulate criteria of service and performance. Federal governments would withdraw from revenue-sharing programs of a service nature (education, health and hospital care), leaving to states and provinces the options of making up the difference by direct taxation or contracting the services out.

Individual Choice

The effect would be to transfer significant amounts of spending power, and decisions about spending, from governments back to the individuals who contribute to their revenue.

Two consequences would follow. First, as federal spending fell, budgets would move into balance while providing for steady retirement of the public debt. Second, as states and provinces assumed full responsibility for matters now subject to revenue sharing, the cost of discharging that responsibility would be met by direct taxation supplemented by borrowing on their sole credit.

In short, the governmental apparatus, which now absorbs about half of national incomes and is adding more to debt every day, would return to. solvency. State and provincial governments, whose seduction into shared cost programs has also forced them to share the debt that the pro grams have incurred, would regain control of their affairs.

Fabians and other critics would denounce the foregoing as a return to laissez faire and the law of the jungle. In fact, however, except for a period in 19th century England, François Quesnay’s laisser passer et laisser faire (free passage and freedom of action) has not been tried.

One of many myths about laisser faire is that it caused the Great Depression. As Murray Rothbard wrote: “Hoover’s role as founder of a revolutionary program of government planning to combat depression has been unjustly neglected by historians. Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor. To scoff at Hoover’s tragic failure to cure the depression as a typical example of laissez faire is drastically to misread the historical record. The Hoover rout must be set down as failure of government planning and not of the free market.”[1]

By contrast, the period from the end of the Napoleonic War to 1890 saw England’s governmental expenditure fall from 29 per cent of the national product to nine per cent. As H.S. Ferns described it: “This period of government expenditure declining in proportion to the total product of the community was one of economic success measured by almost any indicator one cares to choose: population growth, production per capita, intake of food per capita, house building, technological innovation, saving and investment, improvements in literacy, average length of life, etc.”[2]

The irony is that laissez faire capitalism, which would engage everyone’s self-interest to everyone’s benefit, is hobbled by self-interest in league with the state. Powerful groups use elected governments as their agents to restrain trade in their favor. Industry associations, commercial and financial interests, labor unions, even the associations of consumers who have most to gain from laissez faire—all demand special treatment. The results are seen in oligopolies, cartels, import quotas, tariffs, restrictive labor laws and affirmative action programs. In Canada, goods often pass more readily to and from the United States than they do between provinces.

The truth is that all of us are demanding more from governments than they can provide at the cost we are prepared to pay. We won’t pay more taxes—the growth of the underground economy bears witness to that—yet we expect governments to supply the services below cost. It is the rising cost of subsidizing the services, and politicians’ reluctance to reduce the subsidies, that has put governments into debt.

Invest in the Private Sector

Nevertheless, appeals to self-interest may constitute the best hope for change.

It is a fact that the growing proportion of federal budgets consumed by debt charges reduces the proportion that is available to fund government services. As the debt rises, the taxpayers get smaller and smaller returns on their investment in the government that taxes support. If the government raises taxes to meet its rising costs, the taxpayers will keep less of their income. Everything points to the taxpayers getting less value for their money.

It is also a fact, borne out by tax payers’ daily experience, that private suppliers give better service than governments.

Take those two facts together and it is plainly in the taxpayers’ interest to invest less in the government and more in the private sector.

Getting politicians to subscribe openly to the proposition would call for a self-denying ordinance whereby they would resist the temptation to spend other people’s money and start helping them to save some of it instead.

This might be accomplished by looking upon taxes as an investment in government services rather than a levy to meet government’s expenses. Switching from the slow, cumbersome and costly supplier to the efficient and competitive one would be simply an act of good business.

It remains to consider how powerful groups might be resisted in their claims for special treatment. The remedy is to be found in appeals to the principle of equality before the law. “We’re sorry, we sympathize with your proposal, but we must treat everyone alike. Government as it has been allowed to expand is a drag on the economy. You and everyone else will benefit through its withdrawal from active participation.”

Thus two principles are involved: the best government governs least; and all are equal before the law. Having established them, the political leadership would need a rallying cry that would convey the message to the people.

Quesnay’s free passage and freedom of action is ready made. There is an exuberant ring to it, a slogan to blow fresh air across the barriers to freedom.

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